Adjustable versus fixed loans

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A fixed-rate loan features a fixed payment amount over the life of your mortgage. The property tax and homeowners insurance which are almost always part of the payment will increase over time, but in general, payments on fixed rate loans vary little.

When you first take out a fixed-rate mortgage loan, the majority your payment is applied to interest. As you pay on the loan, more of your payment goes toward principal.

Borrowers might choose a fixed-rate loan to lock in a low interest rate. People select fixed-rate loans when interest rates are low and they wish to lock in this low rate. If you have an Adjustable Rate Mortgage (ARM) now, refinancing into a fixed-rate loan can offer greater monthly payment stability. If you have an Adjustable Rate Mortgage (ARM) now, we can assist you in locking a fixed-rate at the best rate currently available. Call Atlanta Mortgage Lending at 678-546-3040 for details.

There are many different kinds of Adjustable Rate Mortgages. ARMs are normally adjusted twice a year, based on various indexes.

Most programs feature a cap that protects borrowers from sudden increases in monthly payments. There may be a cap on interest rate increases over the course of a year. For example: no more than two percent per year, even if the index the rate is based on goes up by more than two percent. Your loan may have a "payment cap" that instead of capping the interest directly, caps the amount that the payment can increase in a given period. Additionally, the great majority of ARM programs have a "lifetime cap" — this means that your rate won't exceed the capped amount.

ARMs most often have the lowest, most attractive rates toward the start of the loan. They guarantee the lower interest rate from a month to ten years. You may hear people talking about "3/1 ARMs" or "5/1 ARMs". For these loans, the introductory rate is set for three or five years. After this period it adjusts every year. These types of loans are fixed for 3 or 5 years, then they adjust after the initial period. These loans are usually best for borrowers who anticipate moving in three or five years. These types of adjustable rate programs most benefit borrowers who plan to sell their house or refinance before the loan adjusts.

You might choose an ARM to get a very low initial interest rate and plan on moving, refinancing or absorbing the higher rate after the introductory rate goes up. ARMs can be risky when housing prices go down because homeowners can get stuck with increasing rates when they cannot sell their home or refinance at the lower property value.

Have questions about mortgage loans? Call us at 678-546-3040. We answer questions about different types of loans every day.